Bitcoin soars by 10% Post-US CPI Data

Bitcoins enjoys a splendid break from the frightening price action this week, the world’s most famous cryptocurrency gained around $1,600, nearly 10%, following the sizable slowdown in US inflation. On Thursday, the Consumer Price Index for October rose 0.4%, far slower than expectations for 0.6%, the Labour Department reported on Thursday.

The annual pace slowed to just 7.7% versus estimates for 8%, and down from 8.2% in September. Bitcoin which fell to a new two-year low of $15,554 on Wednesday thanks to the FTX Binance drama– gained a quick $1,000 in the minutes and $1,600 intraday after the CPI report. At the time of writing, Bitcoin it is trading at $17, 502.

Core CPI – which strips out food and energy – rose 0.3% in October, slower than expectations for 0.5% and falling from September’s 0.6%. On an annualized basis, core CPI was up 6.3% in October slower than expectations for a 6.5% rise and falling from 6.6% in September.

October’s CPI is one of the major reports the Fed will consider before the next FOMC meeting in December 14-15 which will be the last meeting in 2022. The FOMC will surely be raising its benchmark Fed Funds rate for a 7th time in 2022 at that meeting.

Prior to this morning’s CPI print, futures traders on the Chicago Mercantile Exchange (CME) saw an equal chance for the FOMC to go with either a 50- or 75-basis point hike. After the report, chances for 50 basis points increased to 74%.

Behind growing expectations for the smaller move are ideas that recession risks are on the rise, with Fed Chair Jerome Powell conceding at his most recent press conference that the path to a soft landing has “narrowed.” Powell also signaled that the central bank might consider a smaller rate increase in December. On the other hand, Powell said that the terminal rate for this tightening cycle will likely be higher than previously forecast.

“We’ve always said it was going to be difficult, but to the extent rates have to go higher and stay higher for longer it becomes harder to see the path,” Powell said. “I would say the path has narrowed over the course of the last year.”

The Fed began its current rate hike cycle in March, after inflation rose to 7.9% in February. Inflation peaked at 9.1% in June and today’s report shows that pace falling below the February rate for the first time.
While bitcoin is having only a modest rally, equity futures are soaring on thoughts the inflation slowdown might mean the Fed’s tightening cycle could be over sooner than previously feared. Nasdaq futures are higher by just shy of 4% and S&P 500 futures are ahead 3%. Bond markets are in rally mode as well, with the 10-year Treasury yield down a big 21 basis points to 3.93%.